Monday, April 25, 2011

The Liberals Need to Attack the Conservative's Economic Record: they need to point to exploding Housedebt levels and Housing costs

The Liberals have run a better campaign this time around. They have done a good job contrasting their spending priorities to that of the Conservatives and their ads are better. That said, the Liberals focused far too much energy trying to play up the democracy angle at the beginning of the campaign, Ignateiff's performance in the English debate was very poor and Ignatieff's CBC interview was an unmitigated disaster. What is more the Liberals have failed to do two things. One, they have failed properly address the coalition question. Two, they have let Harper greatly overstate Canada's economic standing. When compared to other OCED countries Canada has not performed particularly well. We are middle of the pack.

Now, given the media's complicity in the second, there was probably not much the Liberals could do to put Canada's economic performance into proper perspective. However, the Liberals can still point to something that every Canadians knows, viz., exploding costs. Housing costs, in particular, have exploded under the Harper government and in no small measure this is the Conservative's fault. The Conservative government decided to pour fuel on an already red hot real estate market in 2006. The Conservatives extended the mortgage amortization period from 25 years to 30 years in February 2006, extended it to 35 years in July of 2006 and extended it yet again to 40 years in November 2006. During this period they also reduced the needed down payment on second properties from 20% to 5% and allowed for 0 down on one's primary residence.

The sheer folly of such actions have been underlined by the fact that ever since the downturn Flaherty has been scrabbling to undo some of the damage his past actions have done. Flaherty first reduced amortization period from 40 years to 35 and again mandated a 20% down payment on secondary properties and 5% on primary properties in October 2008 and on March 18th of this year he reduced the maximum amortization period to 30 years. Never once acknowledging that it was he who raised the amortization period to begin with, Jim Flaherty has repeatedly over the course of the last 2 and half years that reducing the amortization and increasing the minimum downplayment was the right thing to do. "In 2008 and again in 2010, our government acted to protect and strengthen the Canadian housing market,"

The problem is it is too little too late. Household debt levels in Canada are out of control. Canada now has higher household debt levels than the US and some of the highest household debt levels in the world. This represents by far the biggest threat to the Canadian economy and housing costs are at the center of it all. Weather it be Bloomberg, Paul Krugman and, if you read between the lines, Mark Carney, many are worried that Canada is headed for a crash that would drive Canada and Canadians deep into debt. Private debt crisis has very real could easily morph into a public one as well. For one thing, since 2006 Canadian mortgage and housing corporations liabilities have gone from 100 billion to 500 hundred billion. If the housing bubble bursts and Canadians start defaulting on their mortgages, the Canadian tax payer will be picking up the tab. The Canadian government guarantees all that debt.

Of course, it is not just housing costs that are exploding. Tuition costs and childcare costs are also increasing far faster than the rate of inflation. The Liberals need to point these exploding costs and lay the blame at the Conservatives feet for either not doing enough or for making things worse.